Top Funds Have Stake in This Small Regional Bank!: This 100-Year-Old Young Bank Is Focusing On Its Core Strength

Equitymaster Agora Research Private Limited
Independent Investment Research
Top Funds Have Stake in This Small Regional Bank!

Welcome to the twelfth issue of Smart Money Secrets!
Indian Economy is going through twin balance sheet problem. By twin balance sheet I mean, with a lot of non-
performing assets, banks are not able to lend and corporates with highly leveraged balance sheets are unable to
expand their capacities.
This has been the case for more than three years now. The pain has gone deep with some recent banking frauds.
However, advent of Indian Bankruptcy Code, 2016 and Reserve Bank of India's tighter control over the NPA
recognition are good long-term steps for the banking sector.
We believe the worst hit are Public Sector Banks (PSU Banks), which means private banks can gain market share
from these in-efficient PSU banks. Further, within that small regional players with solid historical records available
at attractive valuations.
In fact, some of the top funds we follow believes this small regional bank can turn its operations around in next
two years.
Strong Fund Managers Betting on the Company
FRANKLIN TEMPLETON 4.9 4.9 4.3 4.9 4.8
HDFC STANDARD LIFE INSURANCE 1.6 1.8 1.8 1.9 1.9
HDFC TRUSTEE COMPANY LTD 2.1 2.1 2.1 2.1 2.4
ICICI PRUDENTIAL 3.5 3.6 2.3 2.2 1.1
RELIANCE CAPITAL TRUSTEE - 3.3 3.8 3.4 3.0
SAIF INDIA IV FII HOLDING LIMITED 2.3 2.3 2.3 2.3 2.3
SUNDARAM MUTUAL FUND 2.3 2.3 2.3 2.3 1.6
TOTAL 16.7 20.2 18.9 19.2 17.1
Source: Equitymaster
*Please note the partial reduction is due to the recent issuance of the right shares.
One of the important success pattern for a successful regional private bank is - Strong Management.
The company we have spotted for this month's recommendation has recently got its top management changed.
Read on to find more about the company.
This 100-year-Old Young Bank is Focusing on its Core Strength

Completing 100 years is by no means easy to survive for most businesses.
Think about it. Businesses that are still operating for a century. Very few businesses have achieved this rare feat.
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Let's rewind a 100 year and look at some key events that took place.
World war 1. The Great Depression of 1929. World War 2. India's Independence. Three wars with Pakistan and one
with China. The Emergency period (1975-77). The Gulf war (1990-91). The financial crisis of 2007-08.
One century packed with full of events.
There are only a handful of Indian companies who have seen all the action.
Karur Vysya Bank Limited (KVB) is one of them. KVB traversed these treacherous times with flying colors.
KVB was founded in 1916. The initial objective of the bank was to encourage locals to save money and to provide
financial assistance to traders and agriculturists in the region.
Despite several difficulties and challenges, KVB was quick to embrace all emerging opportunities in the Indian
economy.
The government focused on employment-intensive sectors like textiles and automotive in the 1980s. And that
resulted in these sectors booming in various pockets across the country.
Tamil Nadu was at the forefront.
Several regions in Tamil Nadu such as Karur, Namakkal, Dindigul, Tiruchirapalli, and Tiruppur became thriving hubs
for textiles, automotive, and agri-based businesses. Thousands of small and medium enterprises (SMEs)
mushroomed in this region.
KVB became the banker of these small businesses. Over the years, KVB has developed their expertise in lending to
the SME segment. The bank has developed long-term relations with its customers. This, in turn, created customer
stickiness.
Going forward, the bank is positioning itself as a niche bank for the SME sector. KVB has launched new
customized products to cater to the special needs of each type of trade and industry in the sector.
With banking landscape set to change in the future, KVB is transforming itself into a two-pronged strategy of
differentiated banking and going digital.
On the digital banking side, KVB will provide complete solutions for retail as well as SMEs anchored on
convenience. Similarly, KVB is adopting the latest technology, digitizing its operations and using algorithms in its
core operations.
Apart from above, KVB is doing several other things right - increasing focus on retail loans, aggressive cleanup of
the corporate loan book, or hiring the right people at the top.
We believe, KVB is ready to ride the next leg of the journey.
About the Bank

Karur Vysya Bank Limited (KVB) was founded in 1916 by two Karur based visionaries MA Venkatarama Chettiar
and Athi Krishna Chettiar, to inculcate the habit of savings habit among the local population and to provide
financial assistance to traders and agriculturists in and around Karur, a textile town in Tamil Nadu.
While staying true to its roots, KVB embraced and improved upon all the advancements in the banking sector, and
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thus could complete 100 years in its original identity.
KVB- TV Commercial
As of 31 December 2017, more than 53% of KVB's 773 branches are in Tamil Nadu and more than 85% branches in
South India. However, KVB is gradually branching out in other parts of India also. KVB has total of 8,060
employees with an average age of 33 years.
KVB's core strength lies in underwriting commercial loan (Small & Medium Enterprises) book. Going forward, the
bank is positioning itself as a niche bank for the SME sector, with a customized package of products catering to
the special needs of each type of trade and industry in this sector.
However, earlier in FY12-FY14, KVB had been aggressive on the corporate loan segment. Its corporate loan book
grew at a CAGR of 16% during this time. It was mostly consortium lending where small banks such as KVB were
supporting the lead bankers.
The continued slowdown in the economy led to higher NPA slippages. This, coupled with subdued recoveries
resulted in a sharp increase in the bank's gross NPAs from 0.82% in FY14 to 5.94% in 3QFY18.
As of FY17, KVB's loan book was more gravitated towards corporate segment (big ticket loans), which constituted
around 35% of the total loan book. The commercial loan segment constituted around 34%. Retail loans and
Agriculture based loans constitute the remaining.
Nevertheless, the management has changed its focus towards commercial and retail loan segment. The bank will
be very selective in expanding its corporate loan book.
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KVB's Loan Book Breakup
The share of corporate loan book has reduced from highs of 39% in FY12 to 32% in 9MFY18.
KVB is also focusing on reducing the concentration of top 20 borrowers (corporate loans) of the overall
percentage of the loan. The concentration has come down from 12% in FY13 to 9% as per 3QFY18 result. This
secures bank from any vulnerabilities of asset quality going bad from its top 20 borrowers.
KVB's liability and advances are characterized by a high level of granularity. As per the latest data, top 20
depositors contribute only 7% of deposits. Term deposits (contributes 72% of total deposits) are primarily retail
deposits.
Recently, KVB raised Rs 8.9 billion through a rights issue. With this, the capital adequacy ratio (CAR) increased to
13.9% in 3QFY18 compared to 12.5% for the year ended FY17. The recent rights issue provides KVB with adequate
capital for near-term growth.
What is the Way Forward?

Management Change-Bringing Experience and Innovation on the Table
If one looks at the history of the successful banks, one of the important factor has always been
'Management'. With no product differentiation, the only way a bank can differentiate itself is by running it
efficiently.
In the case of IndusInd Bank, since the management change, the market has consistently rewarded
IndusInd Bank for its delivery on improvement in profitability metrics - ROA, ROE. Other banks and
NBFCs such as Federal Bank and Capital First have seen transformations to the overall business.
We see a similar pattern repeating with KVB.
KVB appointed P.R. Seshadri as its managing director (MD) and chief executive officer (CEO). An
alumnus of Indian Institute of Management (IIM) Bengaluru, Seshadri has over 25 years of experience in
commercial and retail banking.
Previously, Seshadri had served Citibank India in various capacities, including the managing director, Citi
Financial Consumer Finance Ltd, Citi Financial Retail Services India. He had also served London-based
BFC Bank Ltd as the CEO.
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Achievements/Responsibilities of Previous Work Experience with Citi Bank
Integrating Citi's consumer businesses to enhance efficiency, reduce cost, standardize

products and services etc.
Transformed the branch network and architecture by adopting 'retail like' behaviour, leading to
a significantly smaller yet powerful distribution network.
Grew productivity between 4 and 8 times (while scaling down the size by roughly half) by
investing in sales management capabilities and the articulation of a sustainable sales
management platform.
Managed Citi's retail asset book comprising of unsecured credit (both revolving and
installment), mortgage, small business, margin, auto and others.
New Product development and launch such as Home Credit and Ready Credit.
Responsible for maintaining the quality of Citi's retail asset portfolio - amongst the large
consumer portfolios in the country during 1999.
We have already started seeing changes at KVB since his arrival. These include:
Enabling real-time credit underwriting in a paperless ecosystem.
Scorecards developed for Retail & Commercial credit products. Similarly, the bank will be
focusing on data insights through customer analytics and behavioural patterns.
Enabling the bank to move from purely judgmental underwriting to an enhanced process that
combines algorithmic underwriting with judgment.
Rolling out more retail and commercial products and focusing on core strengths such as
commercial lending.
Realigning existing branches. This strategy includes focusing more on the core markets such
as Tamil Nadu, Andra Pradesh and Karnataka. Similarly, not going aggressive on branch
expansion as KVB added more than 100 branches in the last two years.
Focusing on becoming more digital.
Recognizing legacy corporate stressed accounts and aggressive cleanup.
Appointment of key personnel: The bank has appointed Mr Ramesh Murthy as a chief risk
officer (CRO) in April 2018. He has more than 25 years of experience in business and risk
management. Similarly, the bank has also appointed Mr J Natarajan as President and chief
operating officer (COO) in the same month.
Changing ESOP structure: Currently, the bank is trying to transform itself into a more modern
institution and move into a digital world. The bank is seeking talent today that can help to
make the transformation. To attract new talent and retaining existing talent, the bank will be
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changing its current ESOP structure (modification of older scheme) by removing the limitation
and putting the SEBI limitation of the total maximum ESOPs permissible.
We believe above changes will help the bank transform from its current operation and help KVB to
become more cost-efficient and profitable.
Overhaul of Corporate Loan Book to Improve the Current NPA Situation
Earlier in FY12-FY14, KVB had been aggressive on the corporate loan segment. Its corporate loan book
grew at a CAGR of 16% during this time. It was mostly consortium lending where small banks such as
KVB were supporting the lead bankers.
However, the continued slowdown in the economy led to higher NPA slippages. This, coupled with
subdued recoveries resulted in a sharp increase in the bank's gross NPAs from 0.82% in FY14 to 5.94% in
3QFY18.
Rising Gross and Net NPAs
With this, KVB's incremental provisioning requirement for ageing NPAs is likely to be high in the coming
two quarters and it may incur sizeable haircut in case of NPA resolutions, thereby impacting its earnings.
The management anticipates the loan book of Rs 12 billion under stress. Out of this, the bank has made
provision of Rs 5.5 billion and the remaining Rs 6.5 billion will be recognized in the next two quarters.
Considering this, we have factored in overall gross NPAs of 5.5% in FY18 and we expect an improvement
from FY19 onwards. This is based on:
KVB to reduce exposure to consortium lending and capping the exposure (will not lend beyond
Rs 0.5 billion).
A continuous reduction in restructured assets and pro-active recognition will lead to improving
asset quality.
Managing corporate loans from special units based out of key divisional office with a
dedicated focus on reducing overdues and ramping up collections. (Transferring power from
branches to these special units)
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Growing retail and commercial asset which are small size tickets, which tend to be more
predictable and focusing on the quality on the corporate segment. Over the years, KVB has
managed to bring down the contribution of the corporate loan book from ~39.4% in FY12 to
32% in FY18.
Going forward, the incremental slippages from the corporate segment is expected to come down. This
will bring down provisioning and help KVB to focus on its core strength (Commercial and Retail).
We expect contribution of corporate loans to come down to 29% by FY21E.
NCLT Resolution - Positive for KVB
Under Insolvency and Bankruptcy Code (IBC), Tata Steel has emerged as the highest bidder to
acquire a controlling stake in Bhushan Steel. It is important to note that Bhushan Steel is one of the
largest non-performing assets in the banking system. Tata Steel will be paying Rs 352 billion to
Bhushan Steel's financial creditor out of total outstanding of Rs 560 billion (translating into ~37%
haircut).
Similarly, Tata Steel has emerged as the highest bidder for Bhushan Power & Steel Ltd. Bhushan
Power & Steel owes ~ Rs 472 billion and Tata Steel had put in a Rs 245 billion offer. (translating into
~48% haircut). However, the National Company Law Tribunal (NCLT) asked lenders of Bhushan
Power & Steel Ltd. to consider Liberty House UK's bid, which is apparently higher than Tata Steel bid
as per Liberty house claims.
It is important to note that the Reserve Bank of India has asked banks to provide a minimum of 50%
of their respective loan amount for the account by March 2018.
KVB has ~ Rs 1.9 billion exposure in Bhushan Steel and ~Rs 3.13 billion in Bhushan Power & Steel.
As such, a haircut of less than their provisioning cover likely will result in a write-back of provisions
for the banks and help improve profitability.
Increasing Focus on Commercial Loan (SMEs) - Banking on Its Core Strength
KVB's headquarter at Karur district is a powerhouse of small and Medium enterprises (SME). Karur is
located ~400 km southwest of Chennai.
Karur district is well known for its robust SMEs in various sectors, especially textiles, paper, and bus
body works. Karur is also a major agricultural hub and a leading trading hub in Tamil Nadu.
KVB started its operations and grown well over the last 100 years by primarily serving the tens of
thousands of SMEs in Karur. Its steady growth over the decades was due to the bank replicating its SME
edge in other SME dense districts of Tamil Nadu like Chennai, Coimbatore, Trichy, Madurai, and Salem.
KVB has a strong presence in the textile belt of Coimbatore-Karur-Tirupur region and has strong
relationships with the local textile manufacturers.
Over the years, the bank expanded its operations to the SME hubs of neighbouring states. Notable
among these operations are in Bangalore, Hyderabad, Vijayawada, Visakhapatnam, & Ernakulam.
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In the recent years, KVB has also strengthened its presence outside of South India. The bank has also
forayed in large SME centres like Mumbai, Delhi, Kolkata, Ahmedabad etc.
Bank Branches in SME Clusters
Anantpur Andhra Readymade Garments, Jeans Garments

Pradesh
Guntur Andhra Power Loom, Lime Calcination

Pradesh
Madurai Tamil Nadu Readymade

Garments, Rice Mills
Coimbatore Tamil Nadu Machine Tools, Castings & Forging, Power loom, Wet Grinding Machines
Ludhiana Punjab Auto Components, Industrial Fasteners, Forging, Bicycle Parts
Jalandhar Punjab Sports Goods, Agricultural Implements, Rubber Goods
Cuttack Orissa Rice Mills, Engineering & Fabrication, Spices
Ernakulam Kerala Rubber Products, Sea Food Processing
Faridabad Haryana Auto Components, Engineering Cluster, Stone Crushing
Vadodara Gujarat Pharmaceuticals - Bulk Drugs, Plastic Processing, Wood Product & Furniture
Source: KVB, Equitymaster
KVB primarily started as an SME bank and continues to position itself as a comprehensive player to
cater to the needs of SME customers. In fact, the management wants to re-position the bank as India's
first specialized SME bank .
KVB offers industry-specific products by understanding customer businesses, market conditions and
industry developments. This distinctive approach translated into mutually beneficial relationships with
customers in these segments. For strengthening its presence in the SME segment, KVB launched new
products in FY17.
These include:
KVB Commodity Plus, for dealers of pulses, cereals, spices, and edible oils.
KVB Food & Agro Plus, for units engaged in the processing of food and agro products.
KVB Construction Plus, for dealers of construction materials.
Other customized products such as Timber Plus, Pharma Plus, Transport Plus, Textile Plus,
Steel Plus, Rice Plus.
KVB MSME Easy Loan for units with a turnover of less than Rs 10 million engaged in
manufacturing or service.
To help the SMEs to manage their funds and receivables more effectively, two products, viz.
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Cash Management Solution and Supply Chain Finance were also launched.
Currently, commercial loans constitute ~ 34% of the total loan book. The average ticket size of the loan
is ~Rs 4.1 million.
KVB aims to take its commercial loan segment to 40% of the total loan book in the next 2-3 years.
Increasing Proportion of Commercial Loans in Overall Loan Book
We have estimated commercial loan book to grow at 17.3% over FY18-FY21. We believe KVB's strong
presence in SME financing, understanding business nuances of its customers (from sectors ranging
from textile, commodity, paper, gem & jewellery etc.) will help KVB to underwrite and price the loan
offering better compared to other regional and national banks.
Not to mention, over the years, the bank has developed long-term relations with its customer. This has
created customer stickiness in the SME segment.
Recently, KVB has developed a scorecard system based on customer profile and history. Lending based
on the scorecard system will improve predictability and help the bank to identify high-risk customers.
With the scorecard in place, KVB will be able to disburse loans to SME customers within 1-2 day (as
against 7 days), thereby improving overall efficiency and faster turnaround. This will also help KVB to
take market share from PSU banks who are struggling with asset quality issues and lack of capital and
grow commercial loan book at a much faster pace.
Increasing Focus on Retail Loans- a Step in the Right Direction
Apart from such SME focused offerings, KVB is focusing on growing its retail loan book. Over FY12-
FY17, the retail loan has grown at a CAGR of 20% and constitute ~15.5% of the total loan book.
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Increasing Proportion of Retail Loans in Overall Loan Book
Major contributors to the retail loan portfolio are the home, car, personal and mortgage loan segments.
KVB has approximately 6.75 million active customers. The bank is focusing on mining existing
customer base and fulfilling their retail needs.
The bank will be using a scorecard system which will help to disburse loan at a faster pace. For e.g.
disbursing 2-wheeler vehicle loan using scorecard system. With this, KVB can compete with the likes of
HDFC Bank and Bajaj Finance who are known for fast loan disbursement. These players don't have a
deep presence in tier-2 and tier 3 cities. Here, KVB has a strong presence.
In the case of housing loans, KVB is working with IT companies and vendors to completely digitizing
housing loans and simplifying the loan process. This will help the bank to cater to housing loan demand
which may rise due to the government push for affordable housing. Revival in the housing market also
provides KVB with incremental growth potential.
Leveraging KVB's Customer Base and Cross Selling Fee-Based Products
Fee based income which includes income from banking charges, debit, Credit, Gift and Travel Card fees,
bancassurance, and other third-party products.
KVB has partnered with Birla Sunlife Insurance Ltd, for the sale of their life insurance products, Bajaj
Alliance General Insurance Co, for the sale of their general insurance products and with SBI Cards &
Payments Company for a co-branded Credit Card.
Between FY12-FY17, fee income grew at a decent pace of 16% CAGR. There is a lot of room for selling
third-party products to existing customers.
Going forward, we expect the bank to leverage its existing customer base and sell fee-based products.
We expect fee-based income to grow at 21% CAGR between FY18-FY21E. This will help KVB to improve
its cost-income ratio and return on equity.
Increasing Productivity: Operating Leverage
KVB mainly focuses on working capital loans which constitute ~80% of the overall loan book. In case of
the falling interest rate regime, term loans are locked at fixed rates which hurts banks in case of interest
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rate reversal (increase in the borrowing cost without an increase in the lending rate).
Around 80% of its loan book is into working capital loans, which means the company has the power to
immediately re-price its loans. The same is reflected in strong NIMs (north of 3%) across business
cycles.
Working Capital Focus Enables Quicker Repricing of Loans
In fact, as of December 2017, it stood at 3.7% (best among other regional players). However, with rising
operating expenses (added more than 100 branches in last three years), the employee count has
increased from 7200 employees in FY16 to 8060 as of 9MFY18 (The cost to income ratio has gone
around 46%).
Now, the increase in operating expenses coupled with the worsening of the asset quality (Gross NPA has
gone to 5.6%) has led to steep decline in profitability in FY18 (we expect a decline of 45% in net profits).
However, now with renewed focus on asset quality and improving efficiencies (faster loan processes),
realigning the branches, slowing down in adding employees and new branches will result in operating
leverage advantage and higher growth in profitability.
In fact, we believe, the cost to income ratio and Gross NPA as a percentage of total advances to come
down to 41.5% and 2.5% by FY21E respectively.
Further, both retail and commercial loans have better margins compared to corporate loans. With
increasing share of commercial & retail and declining share of corporate KVB the margins are expected
to improve.
This will kick in multiple levers and help the net profit to grow at a CAGR of 22% over FY17 and FY21E.
Does the Company Qualify on Equitymaster's Smart Money ScoreTM?

We believe, any good business needs to pass our checklist i.e. smart money score. You can find a detailed
explanation of what the smart money score in our guide. Smart Money Secrets - A Quick Start Guide.
The current month recommendation is a private bank and for a bank or any other financial institution, different
metrics are to be used. Smart Money Score for this company is different as compared to our earlier
recommendations as we have used the different checklist (relevant for analyzing banks and Financial
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Institutions).
What we have also done is - compared KVB with other listed regional banks on various metrics.
1. Smart Money Invested - One of the important catalysts we look in a stock is the smart money. Based on the
holding (higher the better) and our comfort with super investor we assign a rating on a scale of 10.
We also like to see either the super investor or the promoters of the company increase their stake in the
company.
However, in case of banks, promoters do not hold a majority stake. One should understand for a bank both the
raw material and finished goods is cash (think Borrowing and Lending).
This simply means, it requires more capital as it grows and promoters dilute their stake for the same.
While it is common in the banking sector to have low promoter holdings, we have still penalized the company
due to its low promoter holding.
Apart from management, we see smart money invested in the company, funds like SAIF, HDFC and Sundaram
(some of the funds we really like) are invested.
Strong Fund Managers Betting on the Company
FRANKLIN TEMPLETON 4.9 4.9 4.3 4.9 4.8
HDFC STANDARD LIFE INSURANCE 1.6 1.8 1.8 1.9 1.9
HDFC TRUSTEE COMPANY LTD 2.1 2.1 2.1 2.1 2.4
ICICI PRUDENTIAL 3.5 3.6 2.3 2.2 1.1
RELIANCE CAPITAL TRUSTEE - 3.3 3.8 3.4 3.0
SAIF INDIA IV FII HOLDING LIMITED 2.3 2.3 2.3 2.3 2.3
SUNDARAM MUTUAL FUND 2.3 2.3 2.3 2.3 1.6
TOTAL 16.7 20.2 18.9 19.2 17.1
*Please note the partial reduction is due to the recent issuance of the right shares.
Keeping in mind the low promoter holding, we assign a rating of 6 to KVB.
2. Business quality - One reason that makes KVB such a compelling story is its long history of operations and
superior profitability over the years.
Being a regional player, it has survived for hundred years and has built a strong business franchise.
In case of the falling interest rate regime, term loans are locked at fixed rates which hurts banks in case of
interest rate reversal (increase in the borrowing cost without an increase in the lending rate).
As mentioned above, around 80% of its loan book is into working capital loans, which means the company has
the power to immediately re-price its loans. The same is reflected in strong NIMs (north of 3%) across
business cycles.
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Food for Thought - In case of Term Loans: 1) Fixed rate loans - No re-pricing; 2) Floating rate - Re-pricing
but with a lag. In case of Working capital - Immediate re-pricing hence, pricing power.
The re-pricing ability gives stability to the profitability which is reflected in superior return ratios since FY2000.
Return on Assets (Net Profits/ Average Total Assets)
Karur Vysya Bank 2.1% 1.7% 1.0% 1.6%
City Union Bank 1.4% 1.5% 1.5% 1.5%
Karnataka Bank 0.8% 0.7% 0.7% 1.0%
Federal Bank 0.6% 1.1% 0.8% 1.0%
In fact, if we look at the average for the last seventeen years, KVB falls in the best quartile both in terms of
Return on Equity and Return on Assets.
Return on Equity (Net Profits/ Average Net worth)
Karur Vysya Bank 31.3% 22.7% 12.7% 19.9%
City Union Bank 27.3% 21.6% 15.5% 23.2%
Karnataka Bank 14.9% 10.7% 10.8% 16.0%
Federal Bank 14.5% 10.7% 10.2% 15.6%
Interestingly, if we keep last five years aside, where the bank lost its path, KVB used to be the undisputed
champion in regional private bank space.
While the long-term return ratios demand full rating, but the recent worsening of the asset quality and return
ratios (FY18E ROE - 6.8%) has made us penalise the company for two points and we assign a rating of 8 on
business quality.
3. Balance Sheet Quality - For a bank, the quality of the balance sheet is very important, as indicated earlier, for a
bank both raw material and the finished product is cash. This means a bank should have a very strong
balance sheet.
For analyzing the balance sheet quality, we look at four metrics, i.e. 1) Loan Book Growth; 2) Credit to Deposit
Ratio; 3) Current Account & Saving Account (CASA); 4) Capital Adequacy Ratio (CAR).
a. Loan Book Growth - To put it simply this implies at what rate the bank has been able to grow its loan
book over the period. To put things in perspective, we have again compared KVB with other regional
players:
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Loan Book Growth (Compounded Annual Growth Rate)
Karur Vysya Bank 11.3% 19.2% 20.6% 21.7%
City Union Bank 14.4% 21.8% 23.5% 23.4%
Karnataka Bank 12.3% 14.5% 17.2% 18.6%
Federal Bank 14.2% 17.3% 19.3% 18.3%
As shown in the above table, KVB again stands strong in the top quartile in terms of loan book
growth. In the last seventeen years (FY00-17), KVB has grown its loan book at a CAGR of 21.7%.
Interestingly, the growth has been profitable as well (see ROE and ROA tables over the same period).
b. Credit to Deposit Ratio (C/D Ratio) - This implies the efficiency with regards to lending the borrowed
money. For instance, if a bank receives deposits of Rs 100 and lends 60 out of it, the C/D ratio is 60%.
(Higher the better).
Credit to Deposit Ratio (Total Loans/ Deposits)
Karur Vysya Bank 58.5% 69.8% 76.2% 71.0%
City Union Bank 57.4% 66.4% 79.1% 67.2%
Karnataka Bank 47.4% 60.8% 65.2% 59.1%
Federal Bank 62.4% 74.4% 75.1% 68.3%
The above table clearly indicates the efficiency of KVB in utilizing its deposits towards lending.
c. Current Account, Saving Account Deposits (CASA) - A bank lends money out of the deposits it
receives. The deposits can be in two forms i.e. term deposits (attracts higher cost - think FD) and
CASA deposits (low-cost funds).
A bank with higher CASA funds has an advantage of lower cost funds and hence better profitability.
Current Account Saving Account Deposits as a % of Total Deposits
Karur Vysya Bank 20.2% 23.5% 27.7% 22.9%
City Union Bank 24.0% 21.9% 23.4% 20.9%
Karnataka Bank 21.2% 23.3% 29.0% 22.6%
Federal Bank 22.2% 26.2% 32.8% 26.3%
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While in FY 17 the bank has managed to reach 27.7%, but that was largely driven by the
demonetization. Over the years, the bank has not been able to increase its CASA deposits and it falls
in the lower quartile as far as CASA deposits are compared.
While the current level of CASA is comfortable, but we penalize the company for lower level of CASA
deposits in the past.
d. Capital Adequacy Ratio (CAR) - This is one of the most important factors that are used to judge the
soundness and sustainability of a financial institution's business over the longer term.
It shows the ratio of capital to assets financed. The RBI has stipulated a minimum CAR of 9% for
banks as per Basel III.
Capital Adequacy Ratio (Capital/ Risk Weighted Assets)
Karur Vysya Bank 15.2% 12.5% 12.6% 14.6%
City Union Bank 13.3% 12.1% 15.4% 13.1%
Karnataka Bank 11.0% 11.9% 13.3% 12.6%
Federal Bank 11.3% 17.3% 12.4% 13.9%
The CAR also indicates the ability of a bank to grow. The better a bank is capitalized, better it can
grow.
While, historically KVB has been able to maintain a decent capital adequacy of 14.6% in (17 Y Avg),
but the recent worsening of the asset quality (NPAs) has led to multiple rounds of fund raising to
maintain the CAR above the statutory requirements.
Recently, KVB raised Rs 8.9 billion through a rights issue. With this, the capital adequacy ratio (CAR)
increased to 13.9% in 3QFY18 compared to 12.5% for the year ended FY17. The recent rights issue
provides KVB with adequate capital for near-term growth.
Even though, current CAR ratio stands at 13.9 times (post the recent rights issue), the bank may need
to further raise capital to augment the growth in FY19 or early FY20.
We have again penalized the bank for capital adequacy ratio.
Hence, we assign a rating of 7 on Balance Sheet Quality.
4. Profit & Loss Account Quality - Apart from balance sheet, one should also look at profit and loss account. This
helps in understanding the quality of the profits and efficiency of the bank's operations.
To understand the quality of a Profit and loss account, we broadly look at three metrics, i.e. 1) Net Interest
Margins; 2) Cost to Income Ratio; 3) Net Profit Growth.
Net Interest Margins (NIMs) - NIMs are operating margins for the bank i.e. Net Interest Earned (Interest
Income - Interest Expense) on average earning assets.
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As discussed earlier, working capital loan comprises around 80% of KVB's loan book which means it can
reprice the loans quickly resulting in stable NIMs.
Net Interest Margins (NIMs) - (Net Interest Earned/ Average Earning Assets)
Karur Vysya Bank 3.8% 2.7% 3.5% 3.1%
City Union Bank 3.1% 2.5% 3.6% 3.0%
Karnataka Bank 2.1% 1.0% 2.5% 2.2%
Federal Bank 2.5% 3.3% 2.8% 3.0%
The above table shows KVB's strength in maintaining its margins across business cycles. In fact, as of
December 2017, the bank had NIMs of 3.8% (when it is going through the worst phase - asset quality going for
a toss), this shows the company's strength in terms of pricing its working capital loans.
Cost to Income Ratio (C/I Ratio) - Cost to income ratio implies the operating efficiency of a bank. It basically
measures operating expenses (administrative and fixed expenses) as a percentage of operating income (Net
Interest Income + Other Income).
To put simply, it shows how efficiently a bank operates, lower the C/I ratio higher is the efficiency and hence
the profitability.
Cost / Income Ratio (Operating Cost/ (NII + Other Income)
Karur Vysya Bank 44.0% 42.9% 44.9% 44.3%
City Union Bank 38.5% 39.3% 40.9% 38.9%
Karnataka Bank 56.7% 59.7% 56.7% 47.1%
Federal Bank 56.6% 34.9% 53.4% 43.6%
Source: Ace Equity
KVB has over the years had managed to have a tighter control over its cost to income ratio. As on December
2017, it has inched above 44%, which is closer to the historical average. One of the reasons has been
increasing in number of branches and employees in the last two years.
However, the new management has indicated that there would be fewer new branches and employees in years
to come and we expect this would lead to improvement in cost to income ratio and hence the profitability.
Net Profit Growth - The ultimate metric to see a bank's performance is to look at growth in its profitability. Net
profit considers both the operating efficiency and the quality of the loan book (Non-Performing Assets).
Net Profit Growth (Compounded Annual Growth Rate)
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Karur Vysya Bank 3.8% 14.2% 12.1% 17.9%
City Union Bank 12.4% 21.5% 21.1% 24.4%
Karnataka Bank 12.9% 9.8% 11.3% 14.9%
Federal Bank 1.4% 11.0% 16.7% 18.5%
While historically net profit growth has been quite robust, the growth in net profits has hit a roadblock in last
five years. With ballooning of Non-Performing Assets (NPAs) the asset quality of the bank has gone for the
toss (read about the company) and it has resulted in lower profitability, hence lower growth in profits.
However, we believe, the worst is behind and with new management and renewed focus, the profit and loss
account statement will change drastically in next two to three years with NPAs under control.
We assign on a rating of 8 for Profit & Loss Account Quality.
5. Management Quality - One of the important aspects in the banking industry is the right management in place.
A management that understands capital allocation and has a perfect mix of conservatism and aggression
(Growth in Loan book should not be at the cost of Profits).
If one looks at the history of Indian banking sector, the biggest difference between a successful and failed
bank has been the 'quality of the management'.
As discussed above, KVB has recently gone through a management change. The new management team
headed by Mr P.R. Seshadri as its managing director (MD) and chief executive officer (CEO).
He is an alumnus of Indian Institute of Management (IIM) Bengaluru, Seshadri has over 25 years of experience
in commercial and retail banking.
Previously, Seshadri had served Citibank India in various capacities, including the managing director, Citi
Financial Consumer Finance Ltd, Citi Financial Retail Services India. He had also served London-based BFC
Bank Ltd as the CEO.
The new management understands capital allocation and has already started cleaning exercise and turning
around the operations of the bank. (For details read management change section).
We assign a rating of 9 on management and capital allocation.
6. Asset quality - The biggest problem that the Indian banking sector is going through right now is the worsening
asset quality. The elongated slowdown in the economy has led to the inability of big corporates paying up
their loans.
While historically, KVB has always focused more on the MSME side of the business, however, in FY12-13 it
also followed the path of high growth by lending to the corporate sector. As a result, the loan book grew at
16% CAGR, it has impacted the asset quality.
The bank is in the midst of writing off bad loans around Rs 12 billion.
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Net NPAs as % of Advances
Karur Vysya Bank 3.8% 0.2% 2.5% 1.7%
City Union Bank 7.3% 0.6% 1.7% 3.0%
Karnataka Bank 5.7% 1.3% 2.6% 3.1%
Federal Bank 8.6% 0.5% 1.3% 2.6%
While if we look at historical numbers, KVB stands out on the asset quality front as it has always been
conservative in lending and focused on working capital loans (which are less riskier).
However, the recent cleanup will make sure the asset quality remains solid. But the provision coverage (i.e.
writing of the provisions in the Profit and Loss account) will increase which will again lead to lower
profitability.
We have penalized the bank on the recent worsening of the asset quality and assign a rating of 6 on asset
Quality.
7. Competitive Advantage - While banking business per se does not have any competitive advantage because it
is highly regulated trading business.
However, over the years, some banks have outperformed others on many areas like low-cost funds (high CASA
deposits), cost efficiencies (control over cost to income ratios), process efficiencies and niche client profile
(SMEs), niche lending (working Capital loans) among other things.
Now what sets KVB apart from other regional banks:
a. Focus on SMEs (Commercial Loans) - KVB is situated in Karur district of Chennai. It is well known for
SMEs in various sectors, especially textiles, paper, and bus body works. Karur is also a major
agricultural hub and a leading trading hub in Tamil Nadu.
KVB has a strong presence in the textile belt of Coimbatore-Karur-Tirupur region and has strong
relationships with the local textile manufacturers.
Going forward, the bank is positioning itself as a niche bank for the SME sector, with a customized
package of products to cater to the special needs of each type of trade and industry in this sector.
Currently, SMEs forms around 34% of the total loan book, management expects to take this to around
40% in next two to three years. One should note that the majority of these loans are working capital
and small ticket size loans.
b. Working Capital Loans - As indicated above around 80% of the advances are working capital loans.
The short-term nature of the loans makes them more predictable (in terms of the quality) and allows
the bank to re-price their loans quickly.
The same is reflected in strong operating margins of the bank (Net Interest margins). We believe, this
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coupled with improvement in the efficiency (cost to income ratio) and asset quality will completely
change the bank's course going ahead.
c. Strong Liability Side - As indicated above KVB is one of the few banks, which has survived for long
100 years. Over the years, it has created a very strong liability profile with around 6.5 million
depositors.
As per the latest data, top 20 depositors contribute only 7% of deposits. Term deposits (contributes
72% of total deposits) are primarily retail deposits.
However, what the new management has identified is - the bank over the years has not milked the
liability franchise to cross-sell its products.
Now, one of the safest lending in the banking industry is retail (with high growth and low NPAs). We
believe, KVB is well poised to take the advantage of huge liability franchise and cross sell them retail
products like Home Loans, Vehicle loans, Education Loans etc.
While, there are no big competitive advantages that KVB has over its competitors, but we strongly
believe, it is better placed with the new management identifying the right things to do. Hence, we
assign a rating of 7.
Considering the above analysis, the total ranking assigned to the company is 51 (out of 70). On a weighted basis,
it stands at 7.4. This indicates that the fundamentals of the business are decent.
Equitymaster Smart Money ScoreTM
Smart Money Invested 6.0 15.0% 0.6
Business Quality 8.0 15.0% 1.2
Balance Sheet Quality 7.0 10.0% 1.1
P&L Quality 8.0 10.0% 1.2
Management Quality/ 9.0 10.0% 1.4

Capital Allocation
Asset Quallity 6.0 15.0% 0.9
Competitive Advantage 7.0 15.0% 1.1
*Excluding extraordinary gains

Lower the risk on a given parameter higher is the rating
What are the Risks to look out for?

Increasing Competition in the Banking Space
KVB faces competition from large public-sector banks, public sector banks and private sector banks,
NBFCs, and MFIs.
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Also, the Reserve Bank of India (RBI) is aiming to foster competition promote financial inclusion and
support inclusive economic growth by increasing the number of banks. In this respect, the RBI has
liberalized its licensing regulations and intends to issue licenses on an ongoing basis, subject to the
RBI's qualification criteria.
In 2015, the RBI granted "in-principle" approval to 10 applicants for a small finance bank license and 11
applicants for a payment bank license. These measures are expected to make the banking landscape
increasingly competitive.
Geographic Concentration in South India
KVB remains among the smaller banks in India, with a regional concentration in operations. As of 31
December 2017, 53% of the bank's branches were located in Tamil Nadu.
Similarly, more than 75% of its its advances were from South India, with Tamil Nadu alone accounting for
45% of its advances. Any change in social, political situation or occurrence of a natural calamity can
impact the economic condition of the borrowers and in turn, impact the credit quality of the bank.
Deterioration in Asset Quality Could Impact Performance
NPAs of the bank have increased significantly in the past two years. This was on the back of the
corporate exposures (the big-ticket loans) in the last seven to eight years. Although, going forward, KVB
intends to avoid larger consortium lending and cap its exposure.
KVB's gross and net NPAs stood at 3.6% and 2.5% of loan book respectively in FY17. This further
increased to 5.9% and 3.9% in 3QFY18. With this, KVB's incremental provisioning requirement for ageing
NPAs is likely to be high in the coming two quarters and also it may incur sizeable haircut in case of NPA
resolutions, thereby impacting its earnings.
Going forward, an increase in NPAs due to above or other reasons might require the bank to increase its
provisions, which could adversely affect bank's profitability.
New RBI Rule on NPA Recognition and Resolution- Short Term Pain for the Banking Sector
In February 2018, the RBI has revised its stressed asset framework to ensure speedy resolution of bad
loans in the future.
The new framework relies heavily on the Indian Bankruptcy Code (IBC) to resolve stressed assets, while
doing away with several interim schemes such as strategic debt restructuring (SDR), the scheme for
sustainable structuring of stressed assets (S4A), and the corporate debt restructuring (CDR) scheme.
To replace these schemes, the RBI has put in place a strict timeline over which a resolution plan must be
implemented, failing which stressed accounts must be referred to the IBC. With this, the RBI is seeking
to push more large loan defaulters toward bankruptcy courts.
While RBI's revised stressed asset framework is a positive step in the long term, however, in the near
term, this will lead to uncertainty over existing stressed standard assets failing the impairment test and
coming under the revised framework.
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Updates On KARUR VYSYA BANK: Valuations
Add: Alert | Portfolio
We have valued Karur Vysya Bank Ltd based
Market Data on price to adjusted book. In fact, given its One could
long-term track record and dominance in the consider
Price On Reco. Date (Rs) 105 (BSE)
geographies it operates, we believe we have buying the
CMP - BSE / NSE (Rs) 109 / 109 been conservative both in our growth and exit stock of Karur
Change Since Reco. 4.1% multiple assumptions. Hence, we have Vysya Bank
52-week High/Low (Rs) 150 / 96 conducted a scenario analysis. Ltd at Current
Market Price
NSE Symbol KARURVYSYA
What we have essentially done is kept both or lower.
BSE Code 590003
the book value growth and the PB multiple in a
No. Of Shares 726.0 m
range that we are comfortable with and have tried to deduce target price
Face value 2.0
based on different combinations of the same.
FY17 dividend/share (Rs) 2.6
Dividend yield (%) 2.5% The below permutations and combinations based on book value growth
Stock Classification Small cap and P/B multiples gives a fair idea about the potential upside for the
Free Float 97.92% stock.
Market Cap (Rs m) 76,230
Expected Target Price (FY21) Under Different Assumptions of Earnings
Growth and P/E Multiples
Premium Search
10% 12% 15% 18% 20%

Rs 100 Invested Is Now Worth
1.5 128 140 160 182 198
1.75 149 163 187 212 231
2 171 187 213 242 264
2.25 192 210 240 273 297
Karur Vysya Bank Ltd is one of the oldest private sector banks with an
View Updated Chart
operating history of more than 100 years. KVB has over the years build a
solid liability franchise with more than 6.5 million depositors.
Over the years, the bank has also created a stronghold in the SME
segment where both growth and asset quality are relatively better than the
corporate segment.
It specialises in working capital loans (forms around 80% of the total loan
book) which helps KVB to re-price its loans faster than the term loans.
This has helped the bank in stable net interest margins (NIMs).
In FY12-13 the bank deviated from its path and started lending
aggressively towards big ticket loans (corporate loans) and that too in
consortium. This shifted banks focus from high quality lending and
starting FY17 it started seeing an increase in the non-performing assets.
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Finally, the management got changed in late 2017, when Mr Seshadari
took charge as MD & CEO. With strong background and experience, the
new management has started leveraging on the existing core strengths of
KVB.
Along with focusing on the right areas, like growing SME and Retail loans
over corporate loans, the management has also done a cleanup exercise.
It has also put systems to improve credit sourcing and underwriting. In

fact, the management is rightfully converting its huge liability franchise
(6.75 million customers) to cross-sell its retail advances.
We believe, with strong reach in the TIER 2 & 3 towns, KVB is well placed
to leverage its core strengths.
The current valuations provide a decent margin of safety as the stock

trades 1.2 times on price to book basis. If we compare with other banks
both regional and national, KVB is available at a reasonable discount. With
a strong historical background and the new management change we
believe, KVB is well placed compared to its peers.
Valuations - Peer Comparision
Karur Vysya Bank 1.25 15.12 12.7% 1.0%
City Union Bank 2.99 21.17 15.5% 1.5%
Karnataka Bank 0.68 7.44 10.8% 0.7%
Federal Bank 1.59 19.27 10.2% 0.8%
HDFC Bank 4.59 27.17 18.41 1.85
Kotak Mahindra Bank 4.57 38 13.78 1.91
As such, we have arrived at a target price of Rs 159 for the company (from
FY21 perspective). We have assigned an exit price to book multiple of 1.65
times. This implies a CAGR of ~15% (excluding dividend yield of ~2.6%)
and a point to point upside of 51%.
The maximum buy price for the stock is Rs 115.
According to us, in a scenario of ideal allocation of funds, predominantly

mid and small-cap stocks could be considered to comprise of not more
than 30-40% of your total equity portfolio. Further, we believe a single
small cap stock should not form more than 2-3% of the total portfolio.
Please note that this allocation will vary from person to person. For
something that works best for you, we recommend you talk to your
investment advisor.
More On KARUR VYSYA BANK

All Recommendation Reports | Latest Update | Latest Stock Quote
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Consolidated Financials
Interest Income 54,434 56,224 62,089 71,432 82,492 94,885
YoY (%) 1% 3% 10% 15% 15% 15%
Interest Expense 36,620 35,486 38,944 44,867 52,059 60,348
Net Interest Income 17,814 20,737 23,145 26,565 30,433 34,536
YoY (%) 22% 16% 12% 15% 15% 13%
Other Income 7,068 7,822 8,382 10,000 11,961 14,233
Other Expense 12,528 12,528 14,451 16,200 18,160 20,358
Operating Profit (Pre-Provisioning Profits) 5,286 8,210 8,694 10,365 12,273 14,179
YoY (%) 46% 55% 6% 19% 18% 16%
Provisions & Cont. 3,238 6,875 12,010 9,486 8,575 8,411
YoY (%) -33% 112% 75% -21% -10% -2%
Profit before tax 9,116 9,157 5,066 10,880 15,660 20,000
Tax 3,440 2,775 1,535 3,297 4,746 6,061
Profit after Tax 5,676 6,382 3,530 7,583 10,914 13,939
YoY (%) 25% 12% -45% 115% 44% 28%
Effective tax rate 38% 30% 30% 30% 30% 30%
Net profit margin 10% 11% 6% 11% 13% 15%
Net Fixed Assets 4,201 4,411 4,632 4,863 5,107 5,362
Cash and balances with RBI 25,291 27,905 36,086 40,417 45,267 50,699
Balance with banks & money at call 2,625 15,546 18,043 20,208 22,633 25,349
Advances 390,844 409,077 466,348 526,973 595,480 672,892
Investments 132,217 148,575 163,683 184,441 208,418 235,512
Other assets 21,459 15,342 3,598 1,531 1,913 1,720
Total Assets 576,637 620,856 692,390 778,433 878,817 991,534
Networth 45,730 50,357 54,122 61,748 72,707 85,105
Deposits 500,789 536,998 601,438 673,610 754,444 844,977
Borrowings 15,732 16,957 17,804 18,695 19,629 20,611
Other liabilities 14,386 16,544 19,026 24,380 32,037 40,842
Total Liabilities 576,637 620,856 692,390 778,433 878,817 991,534
Key Financial Ratios
EPS (Rs) 7.8 8.8 4.9 10.1 14.2 17.6
BVPS (Rs) 62.9 69.3 74.5 82.5 94.3 107.2
Adjusted BVPS (Rs) 60.0 55.1 53.0 67.0 82.3 96.6
Return Ratios
ROA 1.0% 1.1% 0.5% 1.0% 1.3% 1.5%
23
ROE 12.9% 13.3% 6.8% 13.1% 16.2% 17.7%
Profitablity Ratios
Net Interest Income Growth (YoY) 0.9% 3.3% 10.4% 15.0% 15.5% 15.0%
Net Interest Income as % of Avg Assets 3.2% 3.5% 3.5% 3.6% 3.7% 3.7%
Net Interest Margins (%) 3.4% 3.7% 3.7% 3.7% 3.8% 3.8%
Net Profit Growth (YoY) 24.6% 12.4% -44.7% 114.8% 43.9% 27.7%
Net Profit margins (%) 10.4% 11.4% 5.7% 10.6% 13.2% 14.7%
Efficiency Ratios
Operating Cost/ Avg Assets Ratio 2.3% 2.1% 2.2% 2.2% 2.2% 2.2%
Cost - Income Ratio 50.3% 43.9% 45.8% 44.3% 42.8% 41.7%

Balance Sheet Ratios
Loan Growth 8.2% 4.7% 14.0% 13.0% 13.0% 13.0%
Deposit 12.1% 7.2% 12.0% 12.0% 12.0% 12.0%
Credit - Deposit Ratio 78.0% 76.2% 77.5% 78.2% 78.9% 79.6%
CASA 23.3% 27.7% 27.7% 28.0% 28.5% 29.0%
Capital Adequacy Ratio (CAR) 14.3% 11.9% 12.9% 11.6% 12.0% 11.5%
Asset Quality
Gross NPAs (Rs Mn) 5,112 14,840 27,630 21,079 17,864 16,822
Gross NPA (% of Total Advances) 1.3% 3.6% 5.9% 4.0% 3.0% 2.5%
Net NPAs (Rs Mn) 2,162 10,330 15,620 11,593 9,289 8,411
Net NPAs (% of Total Advances) 0.6% 2.5% 3.3% 2.2% 1.6% 1.3%
Provision Coverage Ratio (Prov to GNPA) 57.7% 30.4% 43.5% 45.0% 48.0% 50.0%
Valuations Ratios
Price to Adj. Book value (x) 1.7 1.9 1.9 1.5 1.2 1.1
Price to Earnings (x) 13.1 11.6 21.0 10.1 7.2 5.8
Quarterly Updates:
SP Apparel Limited: Bouncing Back from the Backyard
After two tough quarters (the company has faced headwinds both on the account of Brexit slowdown and
lowering of duty drawback from 7% to 2%), SPAL has finally showed some signs of improvements.
For 3QFY18, the company showed some improvement on the sales and grew at 11% YoY. Operating profits
(excluding other income) were up 13% YoY. The company saw a steep rise in the employee cost due to increase in
the employees (capacity addition).
However, the net profits continued to decline and was down 13% YoY. Few reasons for the decline in profits was
foreign exchange loss, increase in interest expenses (up 17% YoY) and decline in realisations on the back of lower
duty drawback.
The company has added two new customers in the US and the total Non-UK customers now stand at 13%.
24
Management expects, to further diversify in terms of geography and clients.
In the retail business (crocodile), the business has grown at 88% YoY with margins at 14-15%. Crocodile business
has started contributed decently and management expects to grow this business in TIER 2 and TIER 3 towns.
The company is expanding both its capacity and backward integrating (spinning).
Consolidated Financials: 3QFY18
Sales 1,629 1,465 11%
Operating Profits 301 266 13%
Margins % 18% 18%
Net Profits 138 158 -13%
Margins % 8% 11%
Source: Ace Equity
At current price of Rs 346, the stock is trading at 16 times trailing twelve months earnings (on a low base of
earnings - two quarters have been tough for the company).
Even though the company is going through a transitionary phase due to the Brexit, duty drawback issues, GST
headwinds and currency volatility in its key markets and the stock is down from our buy price. We still believe it is
preparing its business model for a better good for years to come. Hence, we maintain 'Buy' on the stock.
Ador Fontech Limited: Recovery Underway.
Ador Fontech (Ador) continued to show a decent performance post 1QFY18 (where company made loss due to the
GST transition). While in 2QFY18 the profit growth was largely supported by the lower tax outgo, 3QFY18 showed
some real improvement both in terms of sales and profits.
For 3QFY18, sales grew by 15% YoY. Operating profits grew by 61% YoY on the back of operating leverage (lower
raw material cost and employee cost). Net profits for the quarter grew by 61% YoY.
The robust increase in sales and profitability are early signs of recovery.
Standalone Financials
Sales 210 187 12%
Margins % 12% 8%
Net Profits 28 17 61%
Margins % 7% 5%
Source: Ace Equity
Apart from the improvement in the business performance, Ador is expected to witness few tailwinds in the coming
year.
First:
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The repair and refurbishment market is dominated by two players i.e. Ador Fontech and EWAC Alloys (an unlisted
subsidiary of Larsen & Toubro).
In fact, EWAC Alloys is the largest player with market share of around 50%. Now, during last quarter the L&T
decided to exit its non-core business and sell it to UK based ESAB India Ltd. ESAB India is a market leader in the
fabrication market.
Now, this development is expected to increase the market share for Ador Fontech as it is the largest player in the
refurbishment market in India. With ESAB's focus on the fabrication segment over refurbishment, Ador is expected
to gain market share.
Second:
As per the recent union budget, listed companies with turnover below Rs 2 billion need to pay tax at a rate of 25%
instead of the full corporate tax rate. Ador's turnover for FY17 stood at Rs 1.5 billion and the company is expected
to end this year (FY18) at a similar number.
Third:
During 3QFY18, Ador sold three non-core units, these units contributed around 17% of the total revenue. However,
management indicated that the sale of these non-core units will not impact the revenue (the operations will be
shifted to the existing plant).
The sale has been agreed at a total value of Rs13.5 million. This will mean two things i.e. the company will have
more cash (including this amount total cash forms around 16% of the total marketcap). Second, it will result in
better return ratios (lower capital employed).
We believe, Ador is expected to deliver good results in the coming financial year. The stock has gone above our
maximum buy price Rs 100 and hence we have a 'Hold' view on the stock.
TCPL Packaging Limited: Going through a Tough Phase. Good Times Ahead.
3QFY18 continued to be a tough quarter for TCPL packaging. Sales grew by 17% YoY (post GST), however gross
margins declined by 8% to 40%. The fall in gross margins was a surprise as in the normal course the company
would have passed on the increase in the raw material prices to its clients.
Lower gross margins led to lower operating profits and net profits - both down 12% and 25% YoY respectively.
The reason for decline in gross margins looks temporary:
1. Lower share of value added products (Liquor, cigarette and exports markets) - specially liquor as the demand
is still to pick up post the highway liquor ban.
2. Inability to pass on the raw material prices - There was sharp increase in paper prices and the company could
not pass on (look at the reason below).
3. Increase in the raw material inventory for flexible packaging - not matching the demand.
We believe all the above reasons are temporary and largely driven by the macroeconomic disruptions which will
lead to a better situation going ahead.
One of the biggest disruption of initiatives like demonetisation, GST, and other macro events have been the B2B
26
businesses (Business to Business). This includes largely companies supplying to large FMCG, auto, capital goods
etc.
When the big companies do good their suppliers do good as well. However, when these big corporates are in
trouble what they naturally do is squeeze their suppliers.
Last four-five quarters proved to be disruptive for these big corporates. Demand brakes due to demonetisation and
de-stocking & re-stocking due to GST made their business vulnerable.
While they faced a first order effect, the companies supplying to them faced the second order effect. The pain
these big companies especially FMCG faced, was transferred to their suppliers.
TCPL Packaging limited, is one of the biggest supplier of rigid paper-board packaging to FMGC, cigarette and
liquor industry.
TCPL has got all the pain that these big corporates suffered in last few quarters:
1. Quarter 1 - De-stocking due to unclarity on GST rates. This led to low offtake. Thus, low capacity utilisation,
hence, hit on the profitability.
2. Quarter 2 - Re-stocking led to bulk buying by the FMCG player. Since, they bought in bulk they squeezed
suppliers like TCPL packaging to offer hefty discounts. Thus, lower realisations and again a hit on profitably.
3. Quarter 3 - Rise in paper prices which is the key raw material for TCPL packaging. While, it is a pass through
for the company but it was not able to pass through because it covered the discounts given in the previous
quarter. Thus, lower gross margins and again a hit on profitability.
Now, apart from this as we have mentioned in our report the company recently has set up one line the rigid
packaging and one new plant for flexible packaging just before demonetisation.
Thus, the disruption in demand led to negative operating leverage (high fixed cost like employee cost, depreciation
led to erosion in the profits).
Apart from this there has been a pressure in the terms of working capital as well. One of the reason for diluting the
stake was to get cash for working capital requirements.
Now while all these factors are an overhang on the TCPL's short term performance, one should think about the
industry it operates in. As mentioned the paper board packaging is largely dominated by the un-organised players
(more than 50% of the market share).
So, when these headwinds have hit TCPL so hard, it will be very difficult for the small un-organised players to
survive. We strongly believe, this tough situation is very temporary in nature and it may prove to be beneficial for
TCPL in the long term.
If you look across industries, times like this has bought the consolidation in the sector and resulted in organised
players winning.
We believe, things will start looking attractive in the second half of FY19, when the new facilities achieve some
scale. (One should note that last year company added around 27 new clients). It has also secured HUL Europe. It
is also foraying into flexible packaging with ready-made clients (existing clients).
27
Thus, we maintain our view on the stock. Since, the stock has corrected recently and is trading below our
maximum buy price of Rs 600, our view on the stock is 'Buy'.
Mayur Uniquoters: Rebound in the Footwear Market; Green Shoots in the Export Markets
For 3QFY18, Mayur Uniquoters continued doing well. The revenues for the quarter grew by 27% YOY
(adjusted for excise duty). The growth in revenues was largely driven by the pick-up in the domestic
footwear and auto industry.
Operating profits for the quarter grew by 18% YoY with margins contracting to 26%. The contraction in
operating margins was due to increase in raw material prices (up 35% YoY). The increase in crude prices
is resulting into sharp increase in the raw material prices.
Given the lumpy demand situation due to demonetisation and GST Mayur did not take any price hike
since April 2017. However, management indicated that it will try to hike prices in April 2018.
Net profits for the quarter grew by 21% YoY with margins contracting to 16%.
For 9MFY18, sales were up 16% YoY with net profits up 10% YoY.
Financial Performance:
Sales 1,088 1,380 27% 3,584 4,167 16%
Gross profits 479 557 16% 1561 1713 10%
Gross Margins 44% 40% 44% 41%
EBIDTA 305 361 18% 1,001 1,109 11%
EBDITA Margins 28% 26% 28% 27%
PAT 180 218 638 699
PAT Margins 17% 16% 18% 17%
Source: Ace Equity, Equitymaster
Domestic Business: Making Big Strides
Management indicated the growth in the footwear segment in volume terms was 41% YoY and 36% YoY for the
auto segment. While the automotive business has been doing good for a while, the pick-up in the footwear was a
positive push.
Mayur's key footwear client are expanding capacity (Bata and Paragon has ordered more than 10 lines each)
because there is a tremendous shift from un-organised segment post the pains of demonetisation and GST.
Management indicated both footwear and Auto replacement market are expected to do very well in the coming
quarters.
Export Business: Preparing for a Big League
While 3QFY18 was a lacklustre in terms of the exports growth volumes were down ~3% YoY, but there are many
tailwinds expected to unlock in quarters to come.
US OEM: Management indicated the auto OEM players (key clients of Mayur) are expected to launch 5-6 products
28
each in FY18-19. The maximum demand for artificial leather is at the time of launch of a new vehicle and two
years beyond that (the auto sale of a product is at boom for first two years).
Now, Mayur has already started providing samples to these OEMS and expect a growth of 15-20% volume growth
from the US markets.
Entering Europe Market: As we communicated in our earlier updates about Mayur entering the European OEM
market and Mercedes conducting final rounds of audit of Mayur plant.
Management during the call indicated that it has made the necessary changes in the plant required by the
Mercedes and is awaiting the final round (March 2018). It has started making some samples for Mercedes and
expects orders to come by FY20.
Apart from the Mercedes management is also in talks with BMW. One should note, if once it start supplying to
players like Mercedes and BMW it can open up the European market for Mayur which is as big as US.
PU Plant: The company has started the construction for the plant and expects the required machineries will be
received by the end of March 2018. The revenues from this plant are expected to come by the second half of FY19.
The initial investment for the facility (one line) is pegged at Rs 1 billion. The revenue generation from one line is
expected at over Rs 1 billion. Initially, the company will start with just one line and the second line is expected to
start six months thereafter. The facility will have space for 5 lines and subsequent expansion will depend on the
market response. As per the management discussion, the clients are ready to pay 5% to 10% higher than the rate
that China supplies at, as a premium for better quality and timely delivery (which is crucial as the trends in
footwears and furnishing segment tend to change fast).
PVC Plants: The land approval for the Karnataka plant (new plant for the PVC business) has got. The delay is due
to government delays. However, the company expects this should get resolved by March 2018.
Further, in the existing PVC plant at Jaipur, the company is running around 5 lines (out of six). Now, with the
increased demand in the domestic business it will make the sixth line operational.
Apart from this management is also considering ordering one more line (seventh) for catering the possible US
demand.
On Whole management expects a capex of Rs 600 to 700 million in FY19. Further, management expects a sharp
growth in the business in coming years (15-20% for next five years). Since, the stock trades well above our
maximum buy price, our view on the stock remains 'hold'.
TVS Srichakra: Low Rubber Prices to the Rescue
The revenue grew by 8% YoY during 3QFY18. The operating profit increased by 19% YoY. This is on the back of a
decline in rubber prices, which is a key input cost. Rubber futures in Tokyo, Shanghai and Singapore have dropped
more than 20% over the past year on an uncertain outlook for consumption. World natural rubber production rose
4.3% in the first two months of 2018, outpacing the 0.8% increase in demand.
Standalone Financials: 3QFY18
Sales 4,541 4,927 8%
29
Margins % 12.2% 13.4%
Net Profits 285 310 9%
Margins % 6.3% 6.3%
However, Net profits increased by 9% YoY largely on account of higher depreciation charges and interest costs.
TVS Srichakra has been ramping up its capacity and that explains why the depreciation charges were higher
during the quarter.
The company is increasingly focusing on brand building and sales promotion. This has enabled the company to
increase the proportion of revenue from the less volatile and higher-margin aftermarket segment to 43% in FY17
from 25% in FY13.
Timely capacity additions helped the company to maintain around 45% market share in the briskly growing 2W
OEM segment, where it has established and longstanding relationships with top OEMs.
Though rubber prices have softened recently, the positive impact would be offset by an increase in crude-based
input costs for the sector due to an uptick in crude oil prices.
However, TVS Srichakra has agreements with OEMs, which include a formula-based full pass-through of raw
material price changes but with a time lag. However, in the aftermarket segment, its ability to pass-through is
limited due to competitive pressures. A sustained increase in input costs could impact its EBITDA margins.
At the current price of Rs 3,602, the stock is trading at 22.7 times trailing twelve months earnings. The stock has
risen by more than 15% from our recommendation price and has breached our maximum buy price of Rs 3,250.
Hence, we recommend subscribers to consider holding on to the stock at current levels.
Honda Siel Power: A Strong Quarter
Honda Siel had a good third quarter and made a good comeback after the recent lackluster performance. The
topline grew by 15% YoY.
Standalone Financials: 3QFY18
Sales 1,762 2,033 15%
Margins % 14.1% 16.1%
Net Profits 141.1 198.7 41%
Margins % 8.0% 9.8%
Operating profits increased at a much faster pace by 32% YoY. Net profits rose by 41% YoY on the back of strong
operating profit, an increase in other income and decline in depreciation.
Honda Siel 3QFY18 result shows signs of revival in the rural economy. This is on the back of a record harvest in
2017 and rapid remonetisation, backed by a good monsoon.
Going forward, good monsoon projection for 2018 and the government's focus on the rural sector through
measures such as the introduction of MSP, higher funds for irrigation purposes, creation of national farm market
likely to accelerate the gradual recovery in rural demand.
30
At the current price of Rs 1,502, the stock is trading at 25 times trailing twelve months earnings. The stock has
risen by more than 14% from our recommendation price and has breached our maximum buy price of Rs 1,400.
Hence, we recommend subscribers to consider holding on to the stock at current levels.
Jagran Prakashan: Muted Print Advertisement Revenue Impacts Performance
In 3QFY18, Jagran Prakashan saw a muted growth on the back of split of the festive season in two quarters, less
advertisement from government and loss of revenues from political parties' due to the election which had in the
previous year (UP Election-2017). As a result, the topline declined marginally by 1% YoY.
Circulation revenue was largely flat YoY. However, a 5% YoY increase in radio and 10% YoY growth in other
segments (including digital) provided support to overall revenue.
Consolidated Financials: 3QFY18
Sales 6,016 5,981 -1%
Operating Profits 1,866 1,629 -13%
Margins % 31.0% 27.2%
Consolidated Net Profit 974 848 -13%
Margins % 16.2% 14.2%
Consolidated EBITDA declined 13% YoY due to a 9% YoY rise in SGA expenses, with the margin contracting 3.8%
YoY to 27.2%
As a result, net profits declined by 13% YoY. However, the impact was partly mitigated by a 15% YoY decline in
interest cost and a 38% YoY rise in other income.
It's been a double whammy for India's print media as the rising cost of newsprint along with shrinking advertising
growth has hit the profitability of the sector hard. The management indicated an average increase in newsprint
cost for FY19 would be ~10-12%. Over the last one month, the management has finalized domestic contracts for
newsprint consumption. International contracts are yet to be finalized. The company will reduce the impact on
margin by optimizing procurement and increasing cover prices.
The management indicated that ad spends across sectors (primarily led by discretionary spends, real estate, BFSI
and education) are witnessing some recovery, even though government ad spends remain subdued. The
management expects Hindi newspapers revenue growth to outpace that of English.
The company has maintained an undisputed leadership position as per Indian Readership Survey 2017. The
company's flagship brand Dainik Jagran has a Total Readership of 70 million, way ahead amongst all the players
in the Industry. NaiDunia has made a new entry in the Top 10 Hindi newspapers. and a total readership of 7.6
million.
The group's financial health remains robust with net cash of nearly Rs 4 billion. The company is considering a
proposal for buyback of shares and the meeting will be held on 27 April 2018. We think this is a positive
development as it will help to improve its earnings per share.
At the current price of Rs 165, the stock is trading at 14.6 times trailing twelve months earnings. Going forward,
key triggers to drive the company's ad revenue growth are the revival in ad spends, low revenue base which was
impacted by demonetization/GST and pre-election ad spending. This, coupled with the ramp-up in circulation and
radio revenues, bodes well for Jagran. We maintain a 'Buy' view on the stock.
31
Performance Review
This is as per the closing prices for the stocks as on 25th April 2018.
The stock of SP Apparels is trading below the price at which we had originally recommended the stock. Our
maximum Buy price for the stock is Rs 460. Thus, we maintain BUY view on the stock of SP Apparels.
The stock of TCPL Packaging Ltd is trading below the price at which we had originally recommended the stock.
Our maximum Buy price for the stock is Rs 600. Thus, we maintain BUY view on the stock of TCPL Packaging Ltd.
The stock of Ador Fontech Ltd has also gained since our recommendation. The maximum Buy price for the
company is Rs 100. Given that the current price is above the maximum Buy price, our view on the stock of Ador
Fontech remains HOLD.
Mayur Uniquoters has also gained considerably since we recommended the stock. The maximum Buy price for
this stock is Rs 400. Since the current price is above our maximum Buy price, our view on the stock of Mayur
Uniquoters remains a HOLD.
TVS Srichakra Ltd has also gained quite a bit since we recommended the stock. The maximum Buy price for this
stock is Rs 3,250. Thus, our view on the stock of TVS Srichakra Ltd remains a HOLD.
Honda Siel Power Products Ltd has moved upwards since we recommended the stock. The maximum Buy price
for this stock is Rs 1,400. Since the current price is above our maximum Buy price, we maintain our HOLD view on
the stock of Honda Siel Power Products Ltd.
Jagran Prakashan Ltd has fallen since we recommended the stock. Thus, the current price is still below our
maximum Buy Price of Rs 185. Hence, we maintain our BUY view on the stock of Jagran Prakashan Ltd.
Ashiana Housing Ltd has fallen since we recommended it. The maximum Buy price for this stock is Rs 200. Hence,
we maintain our BUY view on the stock of Ashiana Housing Ltd.
Newgen Software Technologies Ltd has not moved much since we recommended the stock last month. The
maximum Buy price for this stock is Rs 260. Hence, we maintain our BUY view on the stock of Newgen Software
Technologies Ltd.
Bodal Chemicals Ltd has fallen since we recommended it. The maximum Buy price for this stock is Rs 140. Hence,
we maintain our BUY view on the stock of Bodal Chemicals Ltd.
The performance review of our open positions table is mentioned below:
Summary of Open Positions for Smart Money Secrets as on 25th April 2018
SP Apparels Ltd 03-Jun-17 Buy 424 766 363 -14% Buy 111%
TCPL Packaging 23-Jun-17 Buy 515 1,100 570 11% Buy 93%
Ltd
Ador Fontech Ltd 27-Jul-17 Buy 95 169 113 18% Hold 50%
32
Mayur Uniquoters 21-Aug-17 Buy 345 673 496 44% Hold 36%
Ltd
TVS Srichakra Ltd 25-Sep-17 Buy 3,127 4,934 3,610 15% Hold 37%
Honda Siel Power 26-Oct-17 Buy 1,314 2,387 1,495 14% Hold 60%
Products Ltd
Jagran Prakashan 22-Dec-17 Buy 171 312 165 -4% Buy 90%
Ltd
Ashiana Housing 27-Jan-18 Buy 187 328 162 -14% Buy 103%
Ltd
Newgen Software 26-Feb-18 Buy 239 416 233 -2% Buy 78%
Technologies Ltd
Bodal Chemicals 19-Mar-18 Buy 125 190 119 -5% Buy 60%
Ltd
Karur Vysya Bank 26-Apr-18 Buy 102 159 105 NA Buy 51%
Here is our list of Top Stocks To Consider Buying
Ashiana Housing Ltd

Newgen Software Technologies Ltd
Kunal Thanvi (Research Analyst), Managing Editor,Smart Money Secrets, a member

of the Institute of Chartered Accountants and the Companies Secretaries of India. He
started his career with a PMS as a buy-side analyst. He is a balance sheet driven
analyst who loves niche businesses with competitive advantages.
He practices value investing based on Ben Graham's principles of 'Margin of Safety'

and 'Mr Market'. He is an avid reader who believes it's better to learn vicariously than
the hard way.
Where Smart Money Secrets Fits In...

Our team will focus primarily in the mid and small cap domain. Having said that, we will remain market-cap agnostic towards
mispriced opportunities that the markets may present to us.
Market participants must note that stock markets tend to be very volatile. Mid and Small cap stocks are inherently riskier
compared to large blue-chip stocks. On the brighter side, they present a huge growth potential. It is not unusual for a good small
and mid-cap stock to turn a multibagger in a short period of time. But on the flipside, there is a considerable risk attached. And
putting too much money in a single stock or sector can be very risky.
According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be considered to
comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small cap stock should not form more
than 2-3% of the total portfolio. Please note that this allocation will vary from person to person. For something that works best for
you, we recommend you talk to your investment advisor.
Frequently Asked Questions

These are some of the Most Frequently Asked Questions on Smart Money Secrets. Please view the others here.
If the stock price runs up post the recommendation and trades at levels higher than the
buy price, should one still buy the stock?
33
Please note that small and midcap stocks, in general, have low market capitalisation and liquidity. There is always
the possibility that these stocks may shoot up in price in no time, even at the time of our recommendation.
Therefore, we would like to recommend to our subscribers not to chase prices and not to consider buying a stock
once it goes beyond our recommended maximum buy price. There will be enough recommendations in a year so
that the pain of missing out on a few recommendations is eased considerably.
Do note that we give maximum buy price range for every stock we recommend in Smart Money Secrets.
Can there be an overlap or contrary views on the stocks recommended under this service
and that of the other Equitymaster services?
We believe that earning good returns from stocks is all about following a well-defined process.
In line with this, each of our product teams, be it the Smart Money Secrets team or Hidden Treasure or The India
Letter, has its own unique screen and checklist for selecting and recommending stocks. In rare cases, where there
is a compelling proposition to recommend a stock in more than one service simultaneously, could there be an
overlap in stocks.
For example, the Smart Money team has unique smart money screener for any stock to pass i.e. 1) Greater than 1%
shareholding of Super Investors; 2) Bulk & Block Deals; and 3) Increasing Promoter Shareholding. On the other
hand, same stock could be recommended under another service irrespective of the smart money screener. In fact,
any service may have recommend a stock and now smart money has entered the stock, it becomes a candidate
for Smart Money Team.
Thus, there could be recommendations that overlap with those in our other services. This aspect also leaves the
stage open for sometimes contradictory recommendations.
What does 'Closed Position' mean?

StockSelect recommendations are meant to meet the target prices within a time frame of three years. So when the
stock meets target price or completes the time frame we 'close the recommendation'. However, since we keep
reviewing our assumptions and estimates for the stock even in the interim, the view or target price on the stock
may warrant a change. This could be a revision upwards or downwards. In such cases, if the previous
recommendation on the stock is no longer valid we close that recommendation. So we essentially close
recommendations either by giving a Sell view or putting out a changed view.
How to read the returns calculations?

For positions that are not closed returns are calculated from date of recommendation till date.
For closed positions, there can be two types of calculations.
Assuming we initially gave a Buy on a stock with no subsequent recommendations on the same stock.
In that case the calculation is fairly simple. The returns shown in this case is simply the change in stock
price from the date of recommendation till the date on which the position was closed.
Now let us take a case where we initiated with a Buy (1st position) and subsequently came with another
recommendation (2nd position) on the same stock. Let us assume that the subsequent
recommendation was also a buy. In such cases, the return calculation depends on whether the 1st
position is closed or not. If the first position is closed before we reiterate buy then the return on the first
position will be calculated as shown previously. However, if 1st position was not closed before we
34
reiterated buy, then the return calculation is from the earlier buy recommendation till the date on which
the position was closed. Basically where we have reiterated view on a stock we try to show cumulative
returns. The same logic applies with Hold recommendations as well.
Now let us look at Sell recommendations. There can be two situations here.
If there is no recommendation subsequent to the Sell recommendation we show maximum drop in stock
price from date of sell recommendation till date.
If the Sell recommendation is followed up by another recommendation, we show maximum drop in stock
price between the two recommendation dates.
Basically we have tried to cover all hypothetical instances in this note that may help you better understand the
return calculations and closed positions of our recommendations. If you have any query pertaining to it please do
write in to us for further clarifications.
Definitions of Terms Used

Buy recommendation: This means that the subscribers could consider buying the concerned stock at
current market price keeping in mind the tenure and objective of the recommendation service.
Hold recommendation: This means that the subscribers could consider holding on to the shares of the
company until further update and not buy more of the stock at current market price.
Buy at lower price: This means that the subscribers should wait for some correction in the market price
so that the stock can be bought at more attractive valuations keeping in mind the tenure and the
objective of the service.
Sell recommendation: This means that the subscribers could consider selling the stock at current
market price keeping in mind the objective of the recommendation service.
To enhance your experience of using Smart Money Secrets and to ensure that this journey is smooth for you we have compiled a list
of Frequently Asked Questions.
DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint
venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research
Analysts) Regulations, 2014 with registration number INH000000537.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment
opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:

For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
Details of Associates are available here.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
b. Equitymaster holds 1 share of Ador Fontech and TCPL Packaging as per the guidelines prescribed by the Board of Directors of the Company. The investment is
35
made for research purposes only. Equitymaster has no other financial interest in Ador Fontech and TCPL Packaging.
c. Equitymaster has financial interest in TVS Srichakra. Equitymaster's investment in the subject company is as per the guidelines prescribed by the Board of
Directors of the Company. The investment is however made solely for building track record of its services.
d. Equitymaster does not have financial interest in any other subject company.
e. Equitymaster's Associates and Research Analyst or his/her relative doesn't have any financial interest in the subject company.
f. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject
company at the end of the month immediately preceding the date of publication of the research report.
g. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research
report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
a. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
b. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
c. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject
company in the past twelve months.
d. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or
brokerage services from the subject company in the past twelve months.
e. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the
research report.
GENERAL DISCLOSURES:
a. The Research Analyst has not served as an officer, director or employee of the subject company.
b. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
a. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective
of the recommendation service.
b. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock
at current market price.
c. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive
valuations keeping in mind the tenure and the objective of the service.
d. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the
recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.
MORE ON KARUR VYSYA BANK MORE SMART MONEY SECRETS
Sorry! There are no related views on news for this Bodal Chemicals Ltd.
(Smart Money Secrets)
company
Mar 19, 2018
Smart Money Secrets recommendation report for

the month of March 2018.
Newgen Software Technologies Ltd.

Feb 26, 2018

the month of February 2018.
Ashiana Housing Ltd.

Jan 27, 2018

the month of January 2018.
36
Jagran Prakashan Limited
Dec 22, 2017

the month of December 2017.
Honda Siel Power Products: Still Awaiting a

Rural Recovery
(Quarterly Results Update - Detailed)
Dec 11, 2017
Good monsoons and a strong product portfolio are

expected to improve Honda Siel's growth prospects
in the coming quarters.
More Views on News Recommended Reading
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38

Top Funds Have Stake in This Small Regional Bank!: This 100-Year-Old Young Bank Is Focusing On Its Core Strength

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Top Funds Have Stake in This Small Regional Bank!: This 100-Year-Old Young Bank Is Focusing On Its Core Strength

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Equitymaster Agora Research Private Limited

Independent Investment Research

Top Funds Have Stake in This Small Regional Bank!

Strong Fund Managers Betting on the Company

FRANKLIN TEMPLETON 4.9 4.9 4.3 4.9 4.8

HDFC STANDARD LIFE INSURANCE 1.6 1.8 1.8 1.9 1.9

HDFC TRUSTEE COMPANY LTD 2.1 2.1 2.1 2.1 2.4

ICICI PRUDENTIAL 3.5 3.6 2.3 2.2 1.1

RELIANCE CAPITAL TRUSTEE - 3.3 3.8 3.4 3.0

SUNDARAM MUTUAL FUND 2.3 2.3 2.3 2.3 1.6

TOTAL 16.7 20.2 18.9 19.2 17.1

Read on to find more about the company.

This 100-year-Old Young Bank is Focusing on its Core Strength

One century packed with full of events.

Tamil Nadu was at the forefront.

We believe, KVB is ready to ride the next leg of the journey.

About the Bank

What is the Way Forward?

We see a similar pattern repeating with KVB.

Integrating Citi's consumer businesses to enhance efficiency, reduce cost, standardize

Enabling real-time credit underwriting in a paperless ecosystem.

Focusing on becoming more digital.

Recognizing legacy corporate stressed accounts and aggressive cleanup.

Overhaul of Corporate Loan Book to Improve the Current NPA Situation

Rising Gross and Net NPAs

We expect contribution of corporate loans to come down to 29% by FY21E.

NCLT Resolution - Positive for KVB

Increasing Focus on Commercial Loan (SMEs) - Banking on Its Core Strength

Bank Branches in SME Clusters

Anantpur Andhra Readymade Garments, Jeans Garments

Guntur Andhra Power Loom, Lime Calcination

Madurai Tamil Nadu Readymade

Ludhiana Punjab Auto Components, Industrial Fasteners, Forging, Bicycle Parts

Jalandhar Punjab Sports Goods, Agricultural Implements, Rubber Goods

Cuttack Orissa Rice Mills, Engineering & Fabrication, Spices

Ernakulam Kerala Rubber Products, Sea Food Processing

Faridabad Haryana Auto Components, Engineering Cluster, Stone Crushing

Source: KVB, Equitymaster

KVB Construction Plus, for dealers of construction materials.

Increasing Proportion of Commercial Loans in Overall Loan Book

Increasing Focus on Retail Loans- a Step in the Right Direction

Leveraging KVB's Customer Base and Cross Selling Fee-Based Products

Increasing Productivity: Operating Leverage

Working Capital Focus Enables Quicker Repricing of Loans

Does the Company Qualify on Equitymaster's Smart Money ScoreTM?

Strong Fund Managers Betting on the Company

FRANKLIN TEMPLETON 4.9 4.9 4.3 4.9 4.8

HDFC STANDARD LIFE INSURANCE 1.6 1.8 1.8 1.9 1.9

HDFC TRUSTEE COMPANY LTD 2.1 2.1 2.1 2.1 2.4

ICICI PRUDENTIAL 3.5 3.6 2.3 2.2 1.1

RELIANCE CAPITAL TRUSTEE - 3.3 3.8 3.4 3.0

SUNDARAM MUTUAL FUND 2.3 2.3 2.3 2.3 1.6

TOTAL 16.7 20.2 18.9 19.2 17.1

Keeping in mind the low promoter holding, we assign a rating of 6 to KVB.

Return on Assets (Net Proﬁts/ Average Total Assets)

Karur Vysya Bank 2.1% 1.7% 1.0% 1.6%

City Union Bank 1.4% 1.5% 1.5% 1.5%

Karnataka Bank 0.8% 0.7% 0.7% 1.0%

Federal Bank 0.6% 1.1% 0.8% 1.0%

Return on Equity (Net Proﬁts/ Average Net worth)

Karur Vysya Bank 31.3% 22.7% 12.7% 19.9%

City Union Bank 27.3% 21.6% 15.5% 23.2%

Karnataka Bank 14.9% 10.7% 10.8% 16.0%